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InsurTech Ohio Spotlight with Gregory Lestini

Gregory Lestini is Partner at Bricker Graydon LLP, building relationships with their clients and the communities they serve. Gregory was interviewed by Michael Fiedel, Co-Founder at InsurTech Ohio and Co-Founder at PolicyFly, Inc.

Gregory, can you define what a successful regulatory sandbox is?

“The sandbox model has been used in a lot of different ways, not just in the insurance space. The most typical are financial services: insurance, banking and those types of regulatory environments. But, it can really be used for anything as it's a closed environment. In the insurance space, it creates a closed space in which a company with a new idea or a new way of providing an insurance service or product can work with a regulator. 

They work on how they're going to roll out the product, sell it, distribute it and communicate it to consumers. That's the big part for the regulator. They want to know how this is going to affect the consumer, especially if it's different than what they're used to. That's usually what we're talking about here, something that's a little different. 

They run that modeling within the sandbox, and it's usually for a finite period of time. It's a little more interaction with the department than you might otherwise have. They’re in constant communication about what they're doing and what the product is, and how it's intended to perform. 

The final key component consists of the on-ramp and off-ramp. The on-ramp is fairly easy, but the off-ramp is critical. At that point, it’s ready for prime time, and we can let it exist in our regulatory environment. We understand all the nuances to it, or it didn't perform the way we thought it would.”

What do newer insurance companies need to understand about the purpose and reservation of these state regulators who are developing these sandboxes?

“The regulators are tuned in on solvency. Say you have a new insurance company, as opposed to a new product or something like that. It's a brand new company. They're looking at solvency, and they're looking at consumer protection. That's their north star when regulators are looking at a new company coming in. One of the things that a sandbox can provide is a place for a company that looks a little different on the solvency side to explain how they're modeling out their pro forma, for instance. That's one of the key things you have to submit to a department, how they're modeling out their pro forma that might not look exactly like companies that the department is used to. 

Ultimately, my experience has been you have to hit the minimum thresholds for capital and surplus as a company, that’s a given. Being a startup doesn't get you out of jail free, but it might just not look the same as what the department is used to. That's usually when they put it in the sandbox.”

From a regulator point of view, how should state regulators be trying to approach and support innovation?

“Ohio is a good example and may be contrary to what we're talking about, but Ohio does not have a sandbox. They have decided that they're going to use more of an ombudsman model where, if you’re a startup, you have someone at the department that helps you through the regulatory process. Part of the reason they're doing that is because Director French is very much committed to innovation and a new and thoughtful way of doing things. Regulators need to stay true to their purpose, which is to protect consumers and make sure that new companies are getting into the business for the right reasons. But, they need to be able to open their minds to innovation.

Insurance is an industry that's been around for a long time, and for the most part, it's pretty simple in the way it works. If you are a regulator and believe it has to look the way it has always looked, then you're not supporting innovation. Regulators are willing to take a little bit of a leap and allow for new and innovative companies and products to go to market. The National Association of Insurance Commissioners started a whole new committee structure. They're organizing committees and creating a whole new committee just for innovation, data and privacy.”

As an industry, what do we need to do to eliminate the gaps between the innovation that insurance companies want to achieve and the responsibility that regulators have to protect the public?

“Exposure is everything. Companies need to be bold about what they're providing but also willing to work through the process with the regulators. Familiarity breeds trust, so companies need to push their idea and work with the regulator. This is important to why this idea is innovative. 

I had a client who, when we were working on something, the department was asking for a lot of information. The investors didn't want to give all the information that the department was asking for. If you looked at the law, you could say that the client was right. They probably didn't have to provide all of that. One of the regulators said to me, ‘At the end of the day, we can ask for anything we want.’ He's right because they're the ones that have to approve it then you have to live with those regulators going forward. If the company understands that, but then is bold about trying to educate the regulators, that's the best way to move this industry forward and make the unfamiliar a lot more comfortable for regulators.”



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